“HR assignment: Pay-for-performance compensation systems”


This assignment gives the brief understanding about the concept Pay-for-performances compensation systems. The main aim is to undertake this study is poor performances of employees or constantly increasing the employees’ turnover in the organization in the healthcare sector. This issue is growing now-a-days in various countries like the USA. In regards to address this issue, the impact of pay-for-performances compensation systems over the stakeholders in the health care sector will be discussed (Larkin et al., 2012). Other than that, both positive and negative aspects of the pay-for-performances will be covered as per the ethical perspective (Eijkenaar et al., 2013). However, positive aspects are the better performances, high motivation level and improve productivity while negative aspects for this model is the quality, high biases, inappropriate limitations of metrics etc. Based on this, this paper critically argues each element of the pay-for-performances compensation systems.

Literature Review

Concept of pay-for-performances compensation system

According to Kumar et al., (2011), the concept of pay-for-performances defines the pay strategy which is widely used in the organization in the USA market for bringing improvements in the employees’ performances. As per this strategy, the compensation is paid to the employees based on the evaluation of the individual and organization performances. So, this strategy is proving effective in motivating the employees in regards to get the right compensation (Bowman, 2010). This concept also helps in developing the positive working environment by removing the maximum chances of biases as compensation is paid according to the individual performances. Similarly, this pay-for-performances (P4P) model is also used largely in the health care sector of USA market. The main cause of using this model is to initiate the improvements in terms to measure of quality, efficiency and remove the excessive cost of the company. This is done by the health care sector by providing the financial incentives and it allows both payers and providers to work co-ordinately towards the operational quality outcomes (MacDonald, 2017). Other than that, P4P model contributes towards motivating the staff for making them move towards the attaining of quality performances target by reducing a large number of medical errors. In a contrary to this, Unützer et al., (2012) identified that there is a big issue in the health care sector to evaluate the individual performances as patients are not randomly distributed to the services provider. So, this creates the problem to identify the performances level of the staff in the nursing practices. Thus, it can be stated that pay-for-performance plays a significant role in the USA market for encouraging the performances of employees but, it is not suitable in many areas.

Positive aspects of the pay for performances in context to healthcare sector

There are various positive aspects for the pay-for-performances that contribute towards the organizations in the USA. In relation to this, Ederer & Manso (2013) depicted that pay-for-performance assists the employer to easily differentiate between the high to low performances level. In this, employer reward the staff as per their performances level as a higher performer gets the high reward. Such practices also encourage the other team member to work effectively for reaching towards the position of the rewarded member. Similarly, DiPrete et al., (2010) mentioned under the pay-for-performances compensation system, productivity is also factors that occur and it provides support towards the company growth. As it is a fact that motivated team members are more enthusiast as compare to de-motivate staff. Such morale assists in boosting the productivity of the company (Lai, 2011). Likewise, in USA healthcare sector more motivates their staff by providing them the financial incentives as per their performances. This exercise allows to boosting the employee’s morale. It is also estimated that the maximum innovation in the medicine and healthcare field mostly occurs in the USA market (Healthcare Triage, 2014). So, this scenario clearly reflects the strength of the pay-for-performances over the different sectors.

In a similar manner, Carraher, (2011) illustrated that the concept of pay-for-performances is accepted by the health care firms in the USA market in order to make a positive impact on their key stakeholders. This model mainly assists the healthcare firms in terms of cost and utilization control. Likewise, through this model, healthcare sectors measures the performances on the basis of quality such as focuses on more prevention and fewer treatments under the nursing care. It means that services of services provider is measured based on the treatments and services payer’s satisfaction (Lee et al., 2012). This practice helps the employer to distinguish between higher and lower performer in the health-care sector. Thus, this model builds the willingness among the services provider to actively participate and contributes their best to achieving the higher position and getting the high monetary, non-monetary rewards etc. It clearly outlines that pay-for-performances have a great and positive impact on the healthcare sector in the country USA (Cherian & Jacob, 2012).

Analysis and Discussion

Issues that are faced in the introduction to the implementations of the pay-for-performances compensation system

There are critical issues which are addressed in the pay-for-performances model. These are the quality and productivity issues etc. In relation to this, Moses et al., (2013) stated that pay-for-performances are widely well appreciated in the USA market. But at the same time, there are various issues that are faced by the healthcare sector in regards to introduce or implement this model into their HR policy. Likewise, the common issue which is found with the pay-for-performances in the healthcare sector in USA market is quality performance. Feldstein (2012) observed that in the practical point of view, it is quite difficult to estimate the performances of services provider because patients are not randomly distributed to any nurse or doctor but it is allotted as per their specialization (Frenkel et al., 2012). At the same time, it is also estimated wrong if the performance of services provider is measured based on the patient medical health conditions. For example, the Centres for Medicare and Medicaid services (CMS) are taken an initiative in regards to making payment to the services provider through incorporating the pay-for-performances. Based on this model, CMS agency designs various factors that help to measure the performance quality of hospitals and doctors. For hospitals, CMS identified approx. 20 process and outcome indicators related to three medical conditions such as acute myocardial infarction, congestive heart failure, and community acquired pneumonia etc. In regards to this, hospitals asked to submit their performances of doctors against the standards. High performers will be rewarded with the annual bonus. But this initiative of CMS is not proved to be so much effective in regards to determining the quality of services among the nursing practices (Podgursky & Springer, 2011). Additionally, the CMS programmes are challenged under the pay-for-performances model in related to design, communication network and impact on performances etc. It means that CMS find issues in determining the performances of different hospitals due to different patients have distinguished medical conditions that cannot be considered as a factor within which performances of doctors are identified. Other than that, there are some issues occurring in setting payouts at the correct levels, technology or market condition changes in different hospitals. Thus, these are the factors that resistant the CMS to successfully measure the performances quality (Korda & Eldridge, 2011). From this example, it is stated that several quality issues are raised with the implementation of pay-for-performances, especially in the healthcare sector.

Furthermore, the problem regards to the well-being of employees is also occur in the successfully execute the pay-for-performances model. This is because, employee performances especially in the case of healthcare sector are largely guided by the availability of equipment, proper hospital infrastructure etc (Andel et al., 2012). If the employees are not satisfied with the offering facilities then they fall short to develop the healthy workplace environment and it also reflects in their performances also. In short, it influences their wellbeing to perform effectively. Such situation creates issues for the management to incorporate the proper pay-for-performances model because of employees’ dissatisfaction towards the management. In a similar manner, it is estimated that the problem arises related to how much would be pay to employees in what manner and whom to pay. Thus, the addressing of this question creates the difficulties for the organization due to the high improper infrastructure of the healthcare sector.

Impact of pay for performances over the key stakeholder remains uncertain under the health care sector

The pay-for-performance impact on the key stakeholders is remaining uncertain and this is considered as a big issue for the health care sector in the USA. The reason behind of this, pay-for-performances is not implemented well in the health-care sector due to improper facilities of equipment and lack of training facilities that does not motivate the employees to work effectively. It influences the performances of employees in a negative manner. Other than that, the difficult process of measuring the performances under the health care sector is also a vital cause of not impacting the stakeholder positively to USA market. According to Andersen et al., (2011), the surveys of health care sector indicates that still, USA is lacking in developing the well-equip health-care infrastructure which creates difficulties to set the target performances for the doctors or nurses. That is why, the impact of pay-for-performances over the employees is showed is shown as an ineffective under the health care sector (Jensen & Murphy, 2010).

Rapid change in the market also considers as a cause of impacting the healthcare stakeholders. It means that high-level trends such as upgraded technology impact the healthcare roles and decision-making. The changing trends have an ability to transform the market and impact relationship of multiple stakeholders (Heinrich & Marschke, 2010). Thus, these make the pay-for-performances impact less on the key stakeholder of the healthcare sector in the USA.

Arguments about the pay performances in regards to the ethical perspective

There is an argument in the concept of pay performances due to the existence of certain limitations in this model which creates a challenge for the sectors like healthcare. In concern to this, Paek et al., (2015) found that pay-for-performances model is proved to be ineffective in the nursing practices due to issue related to performances evaluation is found which does not allow implementing the model successfully. In support to this, lack of accuracy in differentiates the employees’ performance and that is created the issue of biases in the workplace. This practice would be considered as an unethical in the perspective of management. On the other hand, pay-for-performances model not considers the entire factor especially in the health care sectors in the USA and the evaluation which is based on certain factor would provide the biased result. That outcome considers an unethical as per the legal standards.

In the research of Young et al., (2012) it is estimated that in ethical perspective, the concept of pay performances is fruitful to the organization as it reduces the probability of biasness as the incentives are provided as per the performances of the employees. In a similar manner, such practices also boost the morale of employees in terms to explore their skills and attain the higher position and it directly contributes towards the efficiency and productivity of organization (Kellis, 2010). Based on this, it is clear that performances pay is an ethical concept which provides healthy working environment but it is not proved so much effective for the healthcare sector in the USA.

Recommendations & Conclusion

On the basis of above summary, it is recommended that healthcare sector in the USA market should use the performances pay model through addressing each set such as staff experiences, skills, equipment availability and payments method etc. Such practices help to properly evaluate the performances of employees and allow rightly implement the pay performances (Wlodkowski & Ginsberg, 2017). Other than that, it is also suggested that healthcare sector should conduct the training programs for the nursing practices in order to encourage them for performing better & effective. The high performer will achieve the more financial incentives. Thus, these recommendations bring improvements in the implementation of pay performances into the healthcare sector in the USA.

From the above discussion, it is concluded that pay-for-performances concept contributes various benefits to the organization such as it leads to productivity through enhancing the performances of employees. But there are various issues occur in the implementation of pay-for-performances under the healthcare sector at USA market. In this, measuring the performances quality of doctors and nurses is the critical task in reference to paying them financial and non-financial incentives. At the same time, developing the performances standard is also considered as a problem in the pay-for-performances compensation model. Based on this study, it is depicted that pay performances only useful if it is implemented ethically in the healthcare sector.


Andel, C., Davidow, S. L., Hollander, M., & Moreno, D. A. (2012) The economics of health care quality and medical errors. Journal of health care finance, 39(1), pp. 39.

Andersen, R. M., Rice, T. H., & Kominski, G. F. (2011) Changing the US health care system: Key issues in health services policy and management. USA: John Wiley & Sons.

Bowman, J. S. (2010) The success of failure: the paradox of performance pay. Review of Public Personnel Administration, 30(1), pp. 70-88.

Carraher, S. M. (2011) Turnover prediction using attitudes towards benefits, pay, and pay satisfaction among employees and entrepreneurs in Estonia, Latvia, and Lithuania. Baltic Journal of Management, 6(1), pp. 25-52.

Cherian, J. P., & Jacob, J. (2012) A study of green HR practices and its effective implementation in the organization: A review. International Journal of Business and Management, 7(21), pp. 25.

DiPrete, T. A., Eirich, G. M., & Pittinsky, M. (2010) Compensation benchmarking, leapfrogs, and the surge in executive pay. American Journal of Sociology, 115(6), pp. 1671-1712.

Ederer, F., & Manso, G. (2013) Is pay for performance detrimental to innovation?. Management Science, 59(7), pp. 1496-1513.

Eijkenaar, F., Emmert, M., Scheppach, M., & Schöffski, O. (2013) Effects of pay for performance in health care: a systematic review of systematic reviews. Health policy, 110(2), pp. 115-130.

Feldstein, P. J. (2012) Health care economics. USA: Cengage Learning.

Frenkel, S., Restubog, S. L. D., & Bednall, T. (2012) How employee perceptions of HR policy and practice influence discretionary work effort and co-worker assistance: evidence from two organizations. The International Journal of Human Resource Management, 23(20), pp. 4193-4210.

Healthcare Triage. (2014) Doctors, Quality of Care, and Pay for Performance [Online] Available at:  (Accessed: 1st Nov 2017).

Heinrich, C. J., & Marschke, G. (2010) Incentives and their dynamics in public sector performance management systems. Journal of Policy Analysis and Management, 29(1), pp. 183-208.

Jensen, M. C., & Murphy, K. J. (2010) CEO incentives—It’s not how much you pay, but how. Journal of Applied Corporate Finance, 22(1), pp. 64-76.

Kellis, D. S. (2010) Healthcare reform and the hospital industry: What can we expect?. Journal of Healthcare Management, 55(4), pp. 283.

Korda, H., & Eldridge, G. N. (2011) Payment incentives and integrated care delivery: levers for health system reform and cost containment. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 48(4), pp. 277-287.

Kumar, S., Ghildayal, N. S., & Shah, R. N. (2011) Examining quality and efficiency of the US healthcare system. International journal of health care quality assurance, 24(5), pp. 366-388.

Lai, H. H. (2011) The influence of compensation system design on employee satisfaction. African Journal of Business Management, 5(26), pp. 10718.

Larkin, I., Pierce, L., & Gino, F. (2012) The psychological costs of pay‐for‐performance: Implications for the strategic compensation of employees. Strategic Management Journal, 33(10), pp. 1194-1214.

Lee, S. M., Lee, D., & Kang, C. Y. (2012) The impact of high-performance work systems in the health-care industry: employee reactions, service quality, customer satisfaction, and customer loyalty. The Service Industries Journal, 32(1), pp. 17-36.

MacDonald, I. (2017) More U.S. healthcare payments are tied to alternative payment models. FierceHealthcare [Online] Available at:  (Accessed: 1st Nov 2017).

Moses, H., Matheson, D. H., Dorsey, E. R., George, B. P., Sadoff, D., & Yoshimura, S. (2013) The anatomy of health care in the United States. Jama, 310(18), pp. 1947-1964.

Paek, S., Schuckert, M., Kim, T. T., & Lee, G. (2015) Why is hospitality employees’ psychological capital important? The effects of psychological capital on work engagement and employee morale. International journal of hospitality management, 50, pp. 9-26.

Podgursky, M., & Springer, M. (2011) Teacher compensation systems in the United States K-12 public school system. National Tax Journal, 64(1), pp. 165.

Unützer, J., Chan, Y. F., Hafer, E., Knaster, J., Shields, A., Powers, D., & Veith, R. C. (2012) Quality improvement with pay-for-performance incentives in integrated behavioral health care. American Journal of Public Health, 102(6), pp. e41-e45.

Wlodkowski, R. J., & Ginsberg, M. B. (2017)  Enhancing adult motivation to learn: A comprehensive guide for teaching all adults. USA: John Wiley & Sons.

Young, G. J., Beckman, H., & Baker, E. (2012) Financial incentives, professional values and performance: A study of pay‐for‐performance in a professional organization. Journal of Organizational Behavior, 33(7), pp. 964-983.








Leave a Comment